Race to Net Zero – A Broader Perspective Required

Many recent announcements have been made by countries, companies, and other organisations making commitments to achieve “net-zero” emissions by 2025-2050.  What does this term actually mean? According to the World Resources Institute, the term Net Zero means “achieving a balance between the amount of emissions produced and those removed from the atmosphere in order to reduce global warming”. The removal can be achieved in several ways, including phasing out coal plants, investments in clean energy, decarbonising steel, cement, aviation, and reducing food loss and waste. But what about broader measures of climate change that are not encompassed by Net Zero? What about natural capital impacts such as freshwater usage, air and water pollution, land-use change,  biodiversity, and waste management. Net Zero is too limited a concept to define the actions we need to take to address a complex problem that has very broad consequences globally and impacts us all. A different, wider perspective is necessary.  

“Avoid, mitigate and re-compensate” natural resources, including energy use, is the primary concept discussed in the International Finance Corporation’s (IFC) published investment principles. “Avoid” refers to energy conservation, using energy when you “need to”. The cleanest form of energy is the energy you do not use. However, if use cannot be avoided, mitigate its impact through energy efficiency measures, reducing waste in the system, and other appropriate actions. Only after these two measures are taken, should you look at re-compensating fossil fuel energy through renewables. To achieve “net zero” by setting up solar plants, without examining manufacturing processes for improving energy efficiency, is simply not good enough.   

The Intergovernmental Panel on Climate Change (IPCC) released a report last month highlights the seriousness of GHG impacts and the urgency for action on reduction of CO2 emission. The current level of GHG stock at 413 PPM (parts per Million) is the highest in human history and has serious implications for climate change. Recent floods in Europe, water and power shortages in Brazil, raging forest fires in the US and Australia, rising sea levels in certain coastal cities are just some examples of nature’s fury. The costs of inaction are very high. Temperature increases in excess of 1.5 degrees C impacts the global water cycle, carbon cycles, biodiversity and has serious effects on human health. There are no geographic boundaries with respect to climate change effects. We are all in it together!  

Diving further into energy, we must think about energy intensity and energy inclusion as important aspects of the debate on climate change, Energy Intensity of the economy refers to the energy use per unit of GDP and is a function of the carbon intensity of the energy mix in the grid and the resource intensity of the economy. Through the accelerated adoption of renewables, the carbon intensity of the energy mix can be shifted away from fossil fuels. The resource intensity aspect is determined by the stage of economic development of the country, with developing countries needing higher levels of resources as the economy grows and much-needed infrastructure is built. When one discusses energy consumption, Scope I (direct) Scope 2 (emissions related to energy use), and Scope 3 (upstream and downstream effects) also need to be considered.  Outsourcing emissions to countries such as China without changing consumption patterns is also not an effective solution.   

India’s growth trajectory over the next two decades will require a high level of resources and energy.  On the energy front, India has already taken many key steps to reduce the carbon intensity of the energy mix. As of February 2021, 38GW of solar capacity has been built, representing over 10% of the total grid capacity of 380GW. This is only expected to grow with the ambitious growth programs announced by the government. The recent announcement of achieving a 20 per cent blending of ethanol in petrol by 2025 will also accelerate the move away from fossil fuels in India.  The SATAT (Sustainable Alternative Towards Affordable Transportation) program is also a strong policy initiative of the government, to enable waste to energy acceleration using agricultural and municipal waste to produce BioCNG. While hydrogen may be a few years away from commercialisation, costs of green hydrogen equipment (electrolyser and PEM) are dropping rapidly, suggesting that within 5 years we may see hydrogen as a mainstream fuel in India. On a combined basis, through various measures, the government is playing a very influential role in the energy transition in India, moving from fossil fuel dominance to a more Atmanirbhar Bharat, using renewable energy.  

When one studies energy transitions around the world, France (nuclear), Denmark (wind energy), Brazil (bio-fuels), Iceland (geothermal) one key takeaway is that these transitions take decades and are a result of consistent efforts of governments, private sector and consumers working towards a common goal. I am confident that India is on its journey to achieving a shift away from fossil fuels, which will only accelerate in the coming years.  

While evaluating energy transitions, costs cannot be the only consideration. Achieving energy security and energy inclusion are equally important objectives. Today, India depends on fossil fuel imports for 81 per cent of its mobility-related energy needs. By increasing the share of renewables in the energy mix as discussed above, this can be reduced significantly, resulting in savings in foreign exchange and reduced geopolitical risk. Through rooftop solar and mini-grids, we can enhance the goal of “energy for all” an equally important objective. As new solutions and technologies are adopted, costs are expected to drop over time through economies of scale and increased focus on technology improvements.  

The current focus on GHG emissions at the cost of seeing the broader picture of natural capital impacts is insufficient to meet climate challenges.  We must view the impacts from a broader natural capital lens, focusing on other factors such as air pollution, land and water pollution, freshwater usage, land-use change, and waste management, all of which form an integral part of the natural capital framework. We are reaching tipping points with respect to planetary boundaries and if urgent action is not taken, the results can be catastrophic. Corporations need to consider the externalities of their operations, adopting a stakeholder approach than a narrow shareholder approach in their decision framework. This is not CSR, this approach addresses core business risks.  

”[We are the] last generation that can take steps to avoid the worst impact of climate change. Future generations will judge us harshly if we fail in upholding our moral and historical obligations”, said Ban-ki-Moon, the UN Secretary-General. If decisive action is taken, we can leave a better world for our grandchildren. What good would rising market cap valuations be if the quality of life and the world around us are not liveable? We are in the Anthropocene age and have the power to influence outcomes. The question is: Will we act fast enough and decisively enough to turn the situation around and make a positive contribution, individually and collectively to save our future. I certainly hope so.